Wal-Mart’s Road to Sustainability: Paved with False Promises?

Labor Violations, Bogus Standards in Wal-Mart's Chinese Supplier Factories

Facing consumer scrutiny, Wal-Mart has established a number of corporate responsibility standards, enforced through factory audits. Yet despite rising production costs, Wal-Mart has failed to increase the prices it pays for goods. As a result, factories have exploited workers and cheated on environmental commitments. During Wal-Mart inspections, records are hidden and workers are forced to lie about violations. Like Wal-Mart's standards, these inspections are merely a PR performance.

China Labor Watch has published a new report on its long-term investigation of Wal-Mart's Chinese supply chain. The report is based on CLW's investigations from April to June 2009 of Wal-Mart suppliers Huasheng Packaging Factory and Hantai Shoe Factory,

Violations at Huasheng include

• Elaborate system to cheat Wal-Mart audits.
• Some workers make only $0.51/hour, 60% of the minimum wage.
• Poor working conditions: workers inhale large amounts of paper particles and other debris.
• Twelve workers live together in cramped dorms
• Workers not paid overtime wages.
• During busy period, workday is 11 hours or 77 hours per week, and overtime is mandatory

CLW first investigated Hantai Shoe Factory in July 2008. Although Wal-Mart pledged that it would address violations, no public update materialized. CLW's follow-up reveals new violations, and old problems have also persisted. Violations include:

• Overtime only paid up to Wal-Mart's limits. When overtime surpasses the limit, extra wages are not paid until the following month.
• Workers forced to lie to Wal-Mart inspectors.
• 5 hours overtime daily. If workers request not to work overtime once, they will be denied any overtime for a month.
• Disguised layoffs to avoid paying severance payments to workers. Workers are abused by management or switched to undesirable jobs until they quit voluntarily.

These issues represent only a portion of the problems CLW has discovered in these two factories. In nearly 10 years of investigating Wal-Mart's Chinese supply chain, CLW has identified these same violations at the majority of Wal-Mart's suppliers. In terms of labor violations, Hantai is one of Wal-Mart's better factories and Huasheng is one of its worse, yet no where are Wal-Mart's standards actually met.

As the world's largest retailer, Wal-Mart has the ability and responsibility to implement higher standards. CLW Executive Director, Li Qiang, stated, “Wal-Mart's Social Responsibility standards are merely a public relations gimmick and have not actually been implemented; they are a cost-free way to improve public perceptions of Wal-Mart.”

Although Chinese workers lack recourse against abuses suffered in Wal-Mart's supply chain, the world can condemn Wal-Mart's unethical behavior.

The China-U.S. Economic and Strategic Dialogue, which opened in Washington today, will focus on economic, environmental and security cooperation. CLW calls on senior officials of both governments to encourage multinational companies to improve labor conditions in their supply chains and promote effective implementation of China 's Labor Contract Law.

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OPEN LETTER TO MIKE DUKE:

July 27, 2009

Mike Duke
CEO, Wal-Mart Stores, Inc.
702 Southwest Eighth Street
Bentonville , AR 72716 -8611
Tel: 502-731-4000

Dear Mr. Duke,

I write regarding very disturbing evidence of widespread, systematic and serious violations of worker rights at the Hantai Shoe and Huasheng Packaging factories in China where your Wal-Mart products are produced. On July 29, 2008, Wal-Mart promised CLW an investigation to assess violations discovered in CLW's July 15 2008 investigation of Hantai Shoe Factory. One year later, Wal-Mart's investigation still has not arrived. In the meantime, CLW has conducted new investigations targeting both Hantai and Huasheng Packaging factory and discovered serious new violations of worker rights.

Shortly after Wal-Mart's pledge to CLW last year, you stated in Beijing in November that all workers in Wal-Mart's supply chain should be treated with the “respect and dignity they deserve”. This statement is published in Wal-Mart's 2009 Corporate Sustainability Report, alongside a commitment to make all supplier factories compliant with local social regulations by 2011. The report also explains that Wal-Mart will use outside auditing companies to audit its supply chain, and reserve its own auditing force toaddress external allegations. In order to make good on your word, Wal-Mart must verify the violations which CLW has discovered, and implement remediation plans in Hantai and Huasheng factories immediately.

Specifically, we urge you and the Wal-Mart company to immediately address and correct the following violations: At Hantai old problems persist, like the inhumane overtime system, safety issues, incomplete contracts and poor dormitory conditions, and new problems include disguised layoffs and caps on already low wages. At Huasheng, violations include incomplete contracts, wages paid below the minimum wage, inadequate overtime wages, overcrowded dorms andsafety issues. One Huasheng worker told us, “Each day after I clock in, I constantly think of the approaching time to clock out, but when work is slow I also hope that there will be more work so I can make more money. It is truly pitiful: To have trouble feeding my family or to toil at this job, which can I choose?” Is this the respect dignity Wal-Mart workers deserve?

What makes matters worse is that Wal-Mart has conducted audits of both of these factories, and CLW has also provided independent investigation data on Hantai to supplement Wal-Mart's efforts. At Huasheng, we discovered a document used to falsify information for Wal-Mart audits. This document instructs management to force workers to lie about wages, benefits and working time, to hide or “adjust” official documents relating to working schedules, safety procedures and environmental records, and to rush out of the main Huasheng factory to conceal the second factory by blocking the road. Wal-Mart's auditors only inspect conditions at the first factory, covering less than 60% of the Huasheng's total workforce. Clearly the auditing process has fundamental problems that need to be addressed.

We urge Wal-Mart to commit to the following concrete steps to address these violations.

Hantai Shoe Factory:

1) Disguised layoffs: Due to economic difficulties this year, former management have had their positions changed, taking heavy wage reductions. These changes are forced and non-consensual. The contract remains unchanged and workers are given no subsidies.

Another strategy of disguised layoff relies on a trend we reported last year for management to verbally abuse and even beat workers. This has been institutionalized and management will ridicule workers until they quit. A final method to force worker resignation is to reassign workers posts to departments they are entirely unfamiliar with. When workers are unable to complete satisfactory work they will be forced to quit.

• Disguised layoffs allow the factory to reduce its workforce without paying mandatory severance payments legally required by the 2008 Labor Contract Law (LCL), and are a common trend post-economic crisis. Wal-Mart must investigate illegal work position changes and abusive management, and ensure that workers receive legal severance.

2) Incomplete contracts: As CLW discovered last year, contracts state the work position but workers are also required to date a condition that the factory can adjust work positions, enabling disguised layoffs. The contract does not include relevant occupational hazards for specific posts, including specific occupational hazards, measures for worker safety or the number of medical examinations required per year.

• This disregard for contracts is clearly in violation of China 's Labor Contract Law, which requires that all workers sign contracts. Furthermore, according to Article 19 of the law the contract must clearly state the work the job entails as well as occupational hazards. The contract system must be re-evaluated.

3) Inhumane overtime system: Last year's system has persisted, where overtime is mandatory and workers are denied all overtime for a month if they refuse to work excessive overtime each day . Workers must complete overtime work from Monday-Friday for around five hours each day; otherwise, they will be given no overtime at all. Neither the Labor Bureau nor the factory union has approved this system.

If overtime hours surpass a monthly limit, the factory will refigure the extra time into the next month. When the factory distributes overtime wages, it will only pay for the number of hours stated in the system limit, and the next month's overtime work will be calculated according to a smaller limit with the previous month's hours subtracted from the total.

• The current overtime system is involuntary and illegal. All overtime work should be voluntary. In addition, all overtime work should be paid according to legal standards.

4) Wage calculation: Already low wages are now capped for both overtime and piece rate work. Last year, the factory did not have a cap on the maximum number of “pieces” workers could be paid, however, a limit was created this year. Now if workers wages surpass 70 RMB in one day, they will still be paid only 70 RMB.

• Wage caps must be eliminated.

5) Poor dormitory and canteen conditions: Janitors do not work on weekends so the factory will not have to pay them overtime. Bathrooms are dirtiest on the weekends because workers are all in the dormitory, and at these times bathrooms are not cleaned.

Workers who live outside of the dormitories cannot eat in the cafeteria. Workers living in the dormitories are charged a rather high monthly canteen fee of 170-180 RMB regardless of whether they eat in the cafeteria. The current policy has led to reselling of canteen cards and when the factory discovers these transactions, it deducts the monthly canteen fee from the worker who sold the card. Canteen food has not improved since last year. Workers state that canteen food is poor, and even sometimes tastes rancid.

• Janitors must be paid overtime to clean bathrooms on the weekends. The factory should revise its canteen policies and give all workers a choice to eat in the canteen.

6) Safety issues: There is no safety training. When workers first enter the factory, they complete a medical examination (50 RMB paid by workers), run through a two-hour training covering factory rules, and go to the factory floor where section managers introduce their work, which they begin immediately.

Protective safety equipment including gloves, masks and earplugs are only provided once or twice a month, and the factory refuses to replace worn out equipment. Workers are aware of the importance of safety equipment but minimize usage to make it last. Other safety hazards include the widespread use of the chemicals Tianna (tiannashui) and toluene (jianben) in the Printing Dept. There are no scheduled medical examinations or work rotation management policy for special work in the Fuel Injection Dept.

• Wal-Mart must conduct a thorough investigation. Safety training must be provided to workers covering safety equipment and a worker handbook must be developed outlining occupational safety hazards. Protective equipment must be replaced more regularly. Safety conditions in the workshop should be re-evaluated.

Huasheng Packaging Factory:

1) Incomplete contracts: The contract lacks required information on work position and occupational hazards. The contract states that working hours are unfixed, and is unclear about wages, stating only “piece rate” for wage calculation. Workers themselves were unable to offer further explanation on how this piece rate system is calculated.

• See Hantai Factory Violation 2.

2) Sub-Minimum Wages: Wages sometimes fail to meet the minimum wage standard. Workers paid in the piece rate system are paid only 1 fen per 1 square meter of paper and may make only 30 RMB/day when orders are slow. This is an hourly rate of only 3.75 RMB/hour. All workers in the 15 day probationary period are paid at a rate of 3.5 RMB/hour and overtime wage of 4.5 RMB/hour. Rest days depend on orders and workers may work one month without rest. Workers were unclear about factory policy for paid vacation and holidays, nor was this explained when they entered the factory

• The Shenzhen minimum wage standard is 5.17 RMB/hour and 7.76 RMB/hour for overtime work. Workers in the probationary period make only 68% of this minimum, and most workers only make 73% of this minimum when orders are slow. Wages for all workers must meet the minimum wage standard.

3) Overtime Pay Denied and Wages Capped: Workers on the piece rate system are not paid any overtime wages, and salaried workers' wages are capped at 1300 RMB/month.

• Overtime pay is legally required, regardless of wage calculation methods. All workers, including those paid on a piece rate system, should be paid at the legal rate of 1.5 times normal pay for regular overtime, 2 times for weekend overtime, and 3 times for holiday overtime. Wal-Mart should investigate this wage calculation system as well as wage caps which may lead to arbitrary wage deductions.

4) Overcrowded Dorms: Each dorm room houses 12 workers. Night workers and day workers are assigned to the same rooms and often disturb one another's sleeping time. The dormitory doors do not lock and it is also hard to guarantee security in the rooms; theft is common. A room only has one electric outlet, and workers must make a line for charging cell phones. Finally the building is old and water collects following rain.

• Dormitory conditions should be improved.

5) Safety issues: Training for newly hired workers is extremely limited, and the factory merely states factory rules and working time. Workers are not given a work manual. The paper cutting machine is extremely noisy, but workers in the surrounding area do not wear ear plugs or other protection. These machines make workers irritable, and it is necessary to leave the area and still yell to have a conversation. The paper separating and cutting machines release a large amount of paper particles and workers do not have masks. Workers in charge of collecting the paper inhale a large amount of this debris.

Workers also do not wear gloves in the factory, including the paper cutting department, printing department and binding department. In the process of production at a printing factory, workers come in contact with a large number of chemical materials. Without the protection of gloves, masks and other protective equipment, the likelihood of work related injury is high, and the factory turns a blind eye to these issues.

• See Hantai Factory Violation 6.

6) Wal-Mart's auditors have certified both of these factories as meeting its labor standard requirements: How have these auditors missed disguised layoffs, major safety issues, illegal wage calculations and even a second factory at Huasheng?

Each year that Wal-Mart has been in these factories, it has conducted audits and failed to identify these problems. Even after CLW explicitly informed Wal-Mart of the issues, they were neither recognized nor improved. This systematic failure of Wal-Mart's new auditing mechanism to uncover blatant and serious labor violations in these factories represents major flaws in the Wal-Mart factory auditing system. CLW strongly suspects that auditor corruption is at the root of the problem that has allowed Hantai and Huasheng to pass these inspections and produce goods sold in Wal-Mart stores throughout the world.

• Wal-Mart must publicly disclose the names of the auditing companies that have certified both Hantai and Huasheng and failed to identify the problems in the report. Furthermore, Wal-Mart should conduct a wholesale re-appraisal of its auditing system. Instances of corruption are rarely isolated, and it is highly likely that these issues are representative of wider corruption in the Wal-Mart auditing system.

We look forward to a conversation with Wal-Mart about how to improve factory conditions and particularly the apparent problems with its auditing system in China . CLW approves of Wal-Mart's goals to improve its effective response to external allegations and make its suppliers compliant with social regulations by 2011. This achievement can only be achieved by investing more in Huasheng and Hantai factories. You may contact CLW at clw@chinalaborwatch.org or reach us at 212-247-2212.

Sincerely,
Li Qiang
Executive Director

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Wal-Mart's Road to Sustainability: Paved with False Promises?

Old Problems Persist as Wal-Mart Sets Higher Goals

China Labor Watch Follow-up Investigation
July 2009
Tel: 212.247.2212
P.O. Box 4134 , Grand Central Station, New York , N.Y. 10163-4134
Email: qiang@chinalaborwatch.org; greg@chinalaborwatch.org

I. Introduction: New Goals, Old Problems

High Expectations

In Beijing last October, CEO Mike Duke stated that Wal-Mart's goal is to operate a supply chain “ … where workers are paid well and treated well with the respect and dignity they deserve. To achieve this,” he stated, “we are expecting more of ourselves at Wal-Mart, and expecting more of our suppliers.”

Wal-Mart has failed so far to meet its high expectations. Accompanying Duke's statement in the 2009 Wal-Mart Sustainability Report, Wal-Mart frankly admits that its ethical standards program has focused on evaluation and has not allowed Wal-Mart to assist supplier partners in their implementation with implementing of improvement plans. The report also outlines improvements in the audit system intended to improve labor conditions systemically, with the ambitious goal of complying with all local labor regulations by 2011.

Old Problems Persist

In May, China Labor Watch (CLW) investigated two Wal-Mart supplier factories and uncovered a number of labor violations. These problems reflect systemic deficiencies that Wal-Mart is still far from improving. The two suppliers are:

1. Huasheng Packaging Factory: CLW's investigators found a document outlining thefalsified information workers must provide to outside auditors in order to pass factory investigations at Huasheng factory. Meanwhile, violations at Huasheng include contract problems, illegally low wages, arbitrary wage deductions, and safety issues.

2. Hantai Shoe Factory: Wal-Mart pledged in July 2008 to investigate address a number of violations that CLW discovered in an investigation of Hantai Factory last year. In this recent follow-up investigation of Hantai, disguised layoffs and wage caps – most likely a result of the economic recession – were evident. Additionally Hantai continues to tolerate last year's problems including an inhumane overtime system, poor living conditions and safety issues, as first reported last year.

Given Wal-Mart's admirable Sustainability Goals and promise to improve conditions in Hantai and across its Chinese supply chain, CLW endorses a number of concrete steps for Wal-Mart to improve conditions in Hantai and Huasheng. These steps are necessary to move forward on the road to sustainability and will pave the way for proper implementation of more systemic changes by 2011.

II. Report Summary

Wal-Mart Auditing System Enables Poor Conditions to Persist

In its Sustainability Report, Wal-Mart promises to improve its auditing program by shifting auditing responsibilities to third parties, and reserving follow-up investigations and responses to external allegations for Wal-Mart auditors. Our follow-up of Hantai revealed Wal-Mart's failure to effectively resolve issues of noncompliance identified by independent sources. Although the new system absolves Wal-Mart of responsibility for the failures of its audits, now conducted by third parties, Wal-Mart must continue to step up its own efforts to prevent corruption from undermining compliance with basic standards in its supply chain.

Falsification at Huasheng Factory

CLW investigators obtained a number of documents created to prepare Wal-Mart factories to for cheat ing external audits. These documents were circulated at Huasheng Packaging factory on April 18, with the order that workers must memorize these training materials and , do perform well on the inspection . Afterwards , as the documents explained, training materials would be destroyed. These materials instructed workers to give instructions to falsify wage information, overtime hours, and even the existence of a second Huasheng factory.

The audit falsification document employs outlines the following strategies:

• Workers are forced to lie about wages, benefits and working time.

• The factory hides or “adjusts” official documents relating to working schedule, safety procedures and environmental records.

• Workers rush out of the first factory to conceal the second factory, and the road to the second factory is blocked off. Wal-Mart's auditors only inspect conditions at the first factory, covering less than 60 percent of Huasheng's total workforce.

Huasheng has managed to pass Wal-Mart's audits in spite of the following labor violations:

• Incomplete contracts lacking required information about work position and workplace hazards.

• Wages paid below the minimum wage for workers on the piece rate system when orders are slow and for all workers in the 15 day probationary period.

• No overtime wages for workers on the piece rate system , and arbitrary deductions from the base salary of workers on the hourly wage system.

• Overcrowded dorms with 12 workers per room and night and day shift workers forced to occupy the same space where theft is a commonplace occurance. Theft is also common in the dorms.

• Safety issues including inadequate safety training, a dangerous work environment, and workers failing to wear masks or gloves.

• One worker at Huasheng told us, “ Each day after I clock in, I constantly think of the approaching time to clock out, but when work is slow, I also hope that there will be more work so I can make more money. It is truly pitiful: To have trouble feeding the family or to toil at this job, which do we choose?”

Empty Promises at Hantai Factory

Last July, China Labor Watch conducted an investigation of Hantai Shoe Factory, a Wal-Mart supplier in Guangdong Province plagued with labor abuses, including coerced overtime, reduced wages and fake pay stubs, poor dormitory conditions and major safety issues. In response to our report, Wal-Mart released a statement on July 29, 2008 stating that it would investigate the situation. Since then, Wal-Mart has provided no more further information about Hantai Factory.

One year and many sustainability goals later, what changes have been made in Hantai?

In May 2009, CLW investigators returned to Hantai to discover many of the same violations as well as new issues. Hantai's current problems include:

• Disguised layoffs to avoid paying severance payment. This is a new problem introduced by economic difficulties, and is a common tactic in the economic crisis.

• Incomplete contracts lacking required information about work position and workplace hazards.

• An inhumane overtime system has persisted, where overtime is mandatory and workers are denied all overtime for a month if they refuse to work excessive overtime each day .

• Already low wages are now capped for both overtime and piece rate work .

• Poor dormitory conditions. Janitors do not work on weekends so the factory will not have to pay them overtime, and bathrooms regularly turn foul .

• Safety issues including use of unsafe chemicals, improper replacement of safety equipment, and lack of adequate safety training.

CLW Calls on Wal-Mart to Improve Conditions at Hantai and Huasheng

CLW urges Wal-Mart not to abandon its goals. If the retail giant truly hopes to make its suppliers compliant by 2011, the time is now to begin identifying issues of noncompliance and implementing remediation plans. Last year, CLW provided Wal-Mart with independent data outlining a number of changes needed to bring Hantai into compliance with Wal-Mart standards. Wal-Mart has stated that its new system will no longer ignore external allegations and will focus on factory improvement.

Will Wal-Mart invest in improving the problems CLW outlines in this report?

III. Falsification at Huasheng Factory

“After the inspection, these materials should be destroyed.”

On April 18, the factory handed out documents to workers instructing them how to handle a scheduled visit by Wal-Mart inspectors. The department section leaders informed workers that after work, they must memorize the training materials, and that they did not want any mistakes during the inspection. Workers were also instructed to safeguard the materials and not casually leave them about, and above all, not to let the inspectors find them. “After the inspection,” they were told, “the materials will be destroyed.”

During a factory audit, auditors systematically inspect every area of the factory. They look over factory records and verify that labor, quality and safety standards are met. In order to pass this audit, the “Falsification Document” assigns a staff in every department to clear out and adjust all official records. In addition, all workers are responsible for memorizing falsified information in the event that auditors ask questions relating to factory procedures.

Lies prepared for workers

The document instructs workers to state that salaries are calculated on a daily wage system, according to working time, and the minimum wage for base pay is 43.21 RMB/day which used to be at an even higher rate than 43.21 RMB/day . ” In reality, most workers at the factory are paid according to a piece rate system. Only new workers in the first week of their probationary period are paid on an hourly wage basis and their total pay is only 27.5 RMB/day (2.5 RMB/hour)

Workers are also told to state that medical and work-injury insurance are purchased for all workers. In reality, workers in their two month probationary period are not provided with any medical insurance or benefits, and insurance is only purchased after the probationary period finishes.

The document asserts that Monday through Friday are normal working hours, after work there is no overtime. The factory provides room and board and does not charge workers any fees, nor are workers charged when entering the factory. In reality whenever there are orders, there is endless overtime, regardless of whether it is the weekend. The production department daytime shifts works 11 hours a day and the night shift works 11.5 hours. When product orders are high, the transportation department workers may work up to 16 hours a day. The factory does provide room and board, but charges workers a monthly utilities fee. Finally, when entering the factory workers must pay 50 RMB.

Collection of Documents

The document instructs managers that “any documents, forms or rules pertaining to the details of fines or punishments should be collected”. In addition, managers must adjust working records so that all C shift workers and delivery people are not listed as working Saturdays. Managers were also informed that records should be changed to reflect a factory-wide holiday from April 4-6. Finally, managers were instructed to remove the “Production Department Daily Overtime Announcement”.

Staff is was also required to conceal safety violations. First, workers are were instructed to “Make sure all emergency fire exits are unblocked and that all fire equipment is unobstructed.” Second, “The door to the ink room next to the nail machine should be left open, so as to go to JLT.” Third, all workers are were required to state d that “The company has medical first aid and fire safety procedures including fire safety training twice a year in May and October.”

Documents targeting environmental standards, including the “temperature records” and “lake concentrations” for the shuangmian machine and “boiler operating state condition inspection chart” as well as the “boiler room manager monthly patrol check chart” were to be concealed or adjusted to meet standards.

Hiding the Second Factory

In order to avoid implementing subjecting its second factory to the same environmental and labor standards, at its second factory, Huasheng only submits its main factory for audits. The factory makes a concerted effort to conceal the existence of its second factory altogether, instructing some workers to run to the second factory when auditors come, blocking the road to the second factory, and making all workers lie about the total number of Huasheng employees.

Workers are instructed to state that “At the factory there are over 400 people.” In reality, four hundred plus people still doesn't include Huasheng's second factory, and only accounts for workers at the first factory. Factory management has the following instructions: When the customer comes, front door security people should immediately notify HR staff Lily, and also the back door security people should go to the color printing department and send workers to come to the old factory, also send dual workers (at Huasheng and Ruihua) to immediately leave the factory. At the same time, block the road between the two factories and alert the responsible person in each department. Another document reiterates: The passage to the second factory should be blocked, and Huasheng Factory 2 should not be mentioned.

IV. Violations at Huasheng Factory

A. Factory Information

Factory Size: Because of reduced orders, although in the past the workers had as many as 1400-1500 workers, currently there are 700-800 total workforce employees at Huasheng. Huasheng has two factories, covering 51,000 square meters, the production workshop consists of 60,000 square meters.

Main Products: Color boxes, paper cartons, cardboard and other packaging products.

Main Customers: BROTHER, Philips Electronics N.V. PHILIPS, SEIKO EPSON CORP. EPSON, LG Electronics LG, DHL International GmbH DHL, CANON INC., Wal-Mart Stores, Inc. WALMART, Sony Corporation of America , NEC Corporation**, SANYO Electric Co., Ltd.

** NEC later contacted China Labor Watch and stated that their production at NEC was terminated after 2002.

Company Address: Longgang District, Shenzhen , Guangdong Province Pingshan Town Baoshan Industrial Park IV

Contact Telephone : 0755 - 84601120 Liu (General Manager)

B. Hiring Process

1. Labor Contracts

All workers sign labor contracts when they enter the factory and are given a copy. The contract extends from the day workers begin until December 31, 2011 with a two month probationary period. The contract states that working hours are not fixed, and only two words are written for the wage system: “piece rate.” Workers themselves were unable to offer further explanation on how this piece rate system is calculated.

The contract is extremely simple, and lacks required information on work position and occupational hazards. The entire hiring process merely consists of workers filling out a form with personal information then signing the contract.

2. Training

Newly hired workers have one day of training with wages of 28 RMB for 8 hours at 3.5 RMB/hour. The training content is extremely limited, and the factory merely states factory rules and working time. Workers are not given a work manual.

C. Wages and Working Hours

1. Working Hours

Although the labor contract states that working hours are not fixed, in practice the factory has implemented a system of 3 shifts with clearly scheduled working times. Every day, all workers swipe their card twice, once to clock in and once to clock out , and workers do not swipe for lunch time.

A shift is the night shift, and working time runs from 8 pm PM until 8 am AM the next day, with a half hour break to eat midway. The daily working hours for this shift are 11.5 and exceed the limit set by the labor law. B shift is the day shift. Working hours extend from 8 am AM until 8 pm PM with half hour breaks scheduled in the morning and afternoon. In total this shift works 11 hours. C shiftis a day shift. Most workers are very envious of people assigned this shift, mostly university graduate , because the workload is light.

2. Wages

In general workers are divided into two types of salary type: a piece rate system and a base salary system. The base salary is 1300 RMB/ month for 12 hours a per day, and this is paid to staff including product employees in management and security. New workers in the factory are paid by an hourly wage for 15 days at a rate of 3.5 RMB/hour and overtime wage of 4.5 RMB/hour. This is below the Shenzhen minimum wage standard of 5.17 RMB/hour and 7.76 RMB/hour for overtime work.

Piece Rate System

Most workers are paid by a piece rate system. Workers are paid 1 fen/1 square meter of paper. Wages for the section head and assistant are 5.7 and 4.3 fen/square meter, respectively. During periods when orders are high, the section leader can make over 100 RMB/day on the condition that aside from lunch break, the section leader will work continuously all day. When orders are low, this rate could be as low as 30 RMB/day. Normal workers make even less, and at times will not even make enough to satisfy Shenzhen's minimum wage standards. The factory pays wages on the 15 th of each month via Shenzhen Development Bank cards.

Overtime Deductions

No overtime wages are paid to workers on the piece rate system. Salaried workers' wages are capped at 1300 RMB/month. For example, one worker rested 2 days and worked 77 hours of overtime including 69 of Sunday overtime in one month. According to the Shenzhen minimum wage standards, although the worker earned 2197.73 for this month ( 900 base pay + 584. 27 normal overtime + 713.46 Sunday overtime = 2197.73 ) for this month , yet because of the wage cap, they were only given 1300 RMB and nearly 900 RMB was deducted.

3. Rest Days and Holidays

Rest days are determined according to the number of orders. When orders are high, there is no rest for an entire month. When orders are low, the entire factory will be given Sunday off. Regarding overtime, workers stated the necessity of supporting their families by working overtime and earning more. Workers were unclear about factory policy for paid vacation and holidays, nor was this explained when they entered the factory.

D. Dormitory and Canteen Conditions

Dormitories and canteen are free, and workers only need to pay a 30 RMB/month utility fee. There is no stipend for workers to live or eat outside of the factory.

1. Dormitory conditions

The dormitor ies y for regular workers and for management level employees are separate. Outside of the factory the company has rented nicer houses for the management to live in. The workers ' dormitory is inside the factory. It is rather old, tile surfaces are worn, and water cannot drain totally when it rains. Outside of the factory, the company has rented nicer houses for the management to live in.

Each dorm room houses 12 workers . Night workers and day workers are assigned to the same rooms and often disturb one another's sleeping time. The dormitory doors do not lock and it is also hard to guarantee security in the rooms ; theft is common . One older worker stated that it was necessary to carry personal belongings at all times. Workers are coming in and out at all times, and it is absolutely hectic. Once while going to the bathroom, a worker returned to find his cell phone missing. A room only has one electric outlet, and workers must make a line for charging cell phones.

2. Canteen Conditions

Canteen food is average, and dishes with meat are rarely served . Also, every day the same dishes are served, and many workers feel the food is greasy. Workers are unable to go outside to eat because factory regulations state that workers are not allowed to leave the factory area during working hours.

E. Poor Working Conditions and Inadequate Safety Measures

1. Safety Equipment

Deafening machines, no earplugs: The paper cutting machine is extremely noisy, but workers in the surrounding area do not wear ear plugs or other protection. Our investigators found that the deafening noise put workers in an irritable mood and made communication with other workers nearly impossible so much that workers would have to leave the area and still yell to be heard.

Safety masks: Paper separating and cutting machines give off a large amount of paper particles and workers do not have masks. Workers in charge of collecting the paper inhale a large amount of this debris.

Gloves: Workers, including those in the paper cutting, printing and binding departments, do not wear gloves in the factory. In the process of production at a printing factory, workers come in to contact with a large number of chemical materials. Without the protection of gloves, masks and other protective equipment, the likelihood of work related injury is high, and the factory turns a blind eye to these issues.

2. Working Conditions

On May 19 th while the factory was resting, CLW's investigator went to the color printing department (in Huasheng Factory 2). Although the factory was not operating, there was an extremely strong smell on the floor that made breathing difficult. Near the printing machines, there could be seen postings stating that workers not wearing masks would incur punishment. This is evidence of precisely how dangerous conditions are at Huasheng. If a worker is not wearing a mask, the worker may collapse into to the printing machine.

F. Social insurance and benefits

Workers during their probationary period are not entitled to social insurance or benefits. After this, workers' labor contracts state that insurance information is in the worker manual. These manuals , however, are never given to workers. Workers have no way of requiring the factory to purchase insurance of a certain kind and must accept whatever insurance the factory chooses to purchase. For maternity leave, the factory offers one month of unpaid vacation.

III. Follow-up Investigation: Hantai Shoe Factory

A. Factory Information

Factory Size: Currently the factory employs over 4,000 workers, and the male to female ratio is 2:1. Before the economic crisis, the factory employed 7-8 thousand workers.

Main Products: Each year the factory produces around one million pairs of shoes.

Main Customers : The factory mainly produces for Walmart, Sketchers, Fila etc.

Company address Address : Songgang Datianyang Industrial Zone, Bao'an District, Shenzhen

Telephone: 86-0755-29712345

Fax: 86-0755-29712365

B. Hiring Process

1. Recruitment

The fact does not hire child laborers, and all workers must be 18. To be hired, workers must present a valid ID card.

When workers first enter the factory, they must complete a medical examination that costs 50 RMB. Workers who pass enter the factory run through a two hour training that covers factory regulations, and sign a labor contract. After this, workers go to the factory floor where section managers introduce their work, which they begin immediately.

2. Labor Contracts

All workers who are hired will sign a contract. Contracts have 13 provisions including the following:

1. As CLW discovered last year, contract s state the work position but add an additional condition that the factory can examine and adjust the work given to any employee. Workers are required to sign and date this section. This can be used to change workers to undesirable posts and force them to quit, a form ofdisguised layoff.
2. Working hours and rest are set at 8 hours per day and 40 hours per week.
3. In the column for compensation, the base salary is written as 900 RM, a modest increase over last year. During the probationary period workers' wages are only 720 RMB. Wages are distributed on the 7th of each month.
4. The contract does not include relevant labor protection, labor conditions and occupational hazards for specific posts, including specific occupational hazards, measures for worker safety or the number of medical required per year.
5. Workers must give 30 days advanced notice in order to cancel the labor contract.

3. Disguised layoffs: Arbitrary Position Changes

Due to economic difficulties this year, the factory has altered the work position in many contracts. For example, one worker originally worked as a section leader and was transferred to the security staff responsible for fire safety. Others have been moved to front gate security. Some former management has been moved into the regular workforce, taking heavy wage reductions. These changes are were not made with approval from workers but are were totally forced. The contracts remained unchanged and workers were given no subsidies. Workers were very upset about this policy of forced position changes.

C. Wages and Working Hours

1. Working Hours

The factory has three working shifts: a day shift , an evening shift and a special overtime shift. The day shift is divided into day shift one and two. Both the day shift and night shift generally work 2-3 hours of overtime every day, as determined by production needs and there is no night shift subsidy. All workers in the molding and sewing departments are in the special overtime shift, as well as many other workers in the factory. Every day, workers in this shift will work 4.5-5 hours of overtime.

During working hours, workers must complete all required goods. Like last year, bathroom breaks are limited.

Table 1: Hantai Working Hours

Day Shift One	Day Shift Two	Night Shift
Work 7:40AM ~ - 11:40PM Break 11:40PM ~ - 1:10PM Work 1:10PM ~ - 5:10PM Overtime 6: 0 0PM ~ - 7:30PM Sewing, molding depts.: Overtime 6:00PM ~ - 10:40 PM	Work 8:00AM ~ - 12:00PM Break 12:00PM ~ - 1:30PM Work 1:30PM ~ - 5:30PM Overtime 6: 1 0PM ~ - 7:40PM Sewing, molding depts.: Overtime 6:10PM ~ - 10:40 PM	9:00 PM ~ - midnight Midnight Break 12:00AM ~ - 1:30 AM Work 1:30AM ~ - 5:30 AM Overtime 5:30AM ~ - 7:30AM

Annual Production Schedule

Peak production for the factory occurs around Spring Festival, beginning around November and ending around February. The off-season falls in July and August. Generally the factory has orders to fill all year long year round, and workers believe it is a relatively stable factory.

3. Illegal Overtime System

Overtime is required by the factory and is not completely voluntary on the part of workers. In order to reduce costs, the factory will make workers complete overtime work from Monday to Friday for around five hours each day to complete its orders. The factory has not presented this overtime system to the Labor Bureau, and it has also failed to listen to the opinions of the factory union.

The “all or nothing” overtime system identified last year continues. Facing an unreasonably intense daily workload, workers find the workweek unbearable and newly hired workers have difficulty adjusting. If workers apply not to work overtime on this schedule, however, they will not be allowed to do any overtime work outside of their regular hours, seriously limiting wages. This overtime system is inhumane and unnecessary.

If overtime hours surpass a monthly limit, the factory will refigure the extra time into the next month. When the factory distributes overtime wages, it will only pay for the number of hours stated in the system limit, and the next month's overtime work will be calculated according to a smaller limit with the previous month's hours subtracted from the total. One worker stated that after this, they could only work a small amount of overtime, reducing overall wages. This system creates excessive overtime hours and reduces the total wages workers earned .

4. Wages

The factory generally uses two methods to calculate workers' salaries: one is a piece rate system and the other is a monthly salary. The average wage for workers on the piece rate system is 1500 RMB/month (including overtime wages) and on the salary system is 1200 RMB/month (including overtime wages).

Piece Rate System

Last year, the factory did not have a cap on the maximum number of “pieces” workers could be paid, however, a limit was created this year. Now if workers wages surpass 70 RMB in one day, they will still be paid only 70 RMB. On the flip side, if wages do not reach the minimum wage standard, however, the factory will provide a subsidy to meet the standard.

The piece rate system is for an eight hour work day with wages and o vertime wages are calculated at 1.5 times normal wages added to the total “piece” calculation. The piece rate calculation chart is the same as the wage calculation chart for hourly wage workers, and the only different is the calculation method. The wage per article of clothing is lacking on the piece rate calculation chart.

Monthly Salary System

The monthly wage for workers on the salary system is 900 RMB/month, but the wages are calculated according to actual attendance records, and rather than simply adding base wage + overtime wages, the calculation is (base wage ÷ 21.75 × actual days of attendance + overtime wages). Ordinary overtime, weekend overtime and holiday overtime are calculated at 1.5, 2 and 3 times normal wages.

5. Uniform Deductions

Newly hired workers are given two pairs of work uniforms free of cost. However after two or three years of work at the factory workers must pay 30 RMB to buy a new uniform. Workers stated that this is unreasonable.

D. Dormitory and Canteen Conditions

1. Dormitory

The bathroom situation is poor, and janitors only clean the bathroom Monday through Friday and not on weekends. Workers state that bathrooms are dirtiest on the weekends because everyone is in the dormitory. To avoid paying overtime wages, however, the factory does not allow janitors to work on weekends. The result is no cleaning on weekends.

2. Canteen

The factory has a rule that workers who live outside of the dormitories cannot eat in the cafeteria, and workers living in the dormitories are required to eat there. Meals in the canteen cost 6 RMB/day, and the costs are deducted from wages regardless of whether workers eat there or not. Workers stated that the factory should be less strict with this system and allow workers living outside to apply to eat in the factory . The current policy has led to reselling of canteen cards. When the factory investigates and discovers these transactions, it will deduct the monthly canteen fee from the worker who sold the card. Workers stated that the monthly canteen fee of 170-180 RMB is expensive.

Canteen food has not improved since last year. Workers stated that the sanitary conditions are poor and that the food does not taste good. Breakfast consists of is soy milk, mantou rolls, baozi steamed buns, fried dishes, chaofen rice noodles and more etc. However the fried dishes are usually leftovers from the previous night's congee, fried in a little oil. Workers stated that canteen food is poor, and sometimes even sometimes tastes rancid.

E. Safety and Work Conditions

1. Safety Equipment

Protective safety equipment is provided to workers including gloves, masks and earplugs. However, workers stated that the factory only changed the items once or twice a month, which is too long not enough and since often equipment often gets worn out and the factory still refuses to change for functioning equipment.

To prevent equipment from wearing out, workers reduce their use of protective equipment. Although they are clearly aware that this is damaging to their health, workers must preserve equipment as it will not be replaced . The only time when workers all wear their equipment is when customers come to inspect the factory.

2. Work Conditions

Although the workshop area has fans and ventilation, workers stated that because of the large number of machines the temperature is still too hot.

All workers in the Printing Department use the chemical Tianna, tiannashui, and some processes require chemicals like toluene, jianben.

For special types of work like the Fuel Injection Department there is no scheduled medical examination or work rotation management policy.

3. Injuries

Several workers at the factory have had suffered from work-related injuries, but not many. The factory purchases injury insurance for employees. For example, one worker from Guizhou had his finger crushed and was designated as a level ten disability. The factory was required to compensate the worker 8000 RMB. When the worker left the factory, he was further compensated 4000 RMB. Workers state that in most cases of work-related injury, compensation is only distributed when workers leave the factory and not before.

F. Social insurance and benefits

1. Award and penalties

After an incident in which a worker sued the factory, At present the factory presently issues few penalty fines because an incident last year when a worker sued the factory for this policy.

2. Termination issues

It is not hard to resign from the factory. Generally, during the probationary period workers must give three days notice before resignation, and normal workers must give a month notice and adhere to officially specified termination procedures. If workers chooses to terminate contracts, the factory will distribute the previous month's pay between the 7th and 10th. Workers looking to quit without following required procedures must work until the previous months wages are distributed to leave and will not be compensated for work in the new month. Therefore, while the factories procedures for leaving are effective, many workers also leave without official approval.

G. Corruption

1. Audit Falsification

Before audits, the factory will distribute materials for all workers to read and memorize so they will know how to respond to any questions inspectors may ask. This same practice is utilized in Huasheng, and a translated version of the falsification document is attached.

2. Misplaced Funds

Corrupt mid-level management frustrates workers. For example, last year after the Sichuan earthquakes, the factory organized a fundraising collection for workers from the disaster area in Wenchuan. One worker from Wenchuan whose home collapsed was entitled to a portion of the charity fund. However, the fund accountants said that if they gave the money too soon, a new house would be destroyed by aftershocks. Later, the factory was “unable” to pay all of the charitable money the worker was entitled.

Workers state that the factory's financial system is disorganized and poorly monitored.

3. Disguised Layoffs: Worker Abuse

Last year, it was discovered that management verbally abused and even beat workers. The factory management continues to yell at workers often on a regular basis. Workers s aid that although the factory claims to have humane management, factory managers are unfair and even crude in their interaction with workers, sometimes using bad language in their verbal attacks. This has also been institutionalized in disguised layoffs when managers ridicule workers to make them quit. Another method to force worker resignation is to reassign workers posts to departments they are entirely unfamiliar with. When workers are unable to complete satisfactory work they will are be forced to quit.

V. Appendix: Huasheng Falsification Document

In the detailed pdf report, please find the original document in Chinese following the page it translates. Below, find the English translation. All charts with names and workers numbers have been removed.

Page 1

Wal -Mart Factory Audit Items to Note

All departments must pay attention to the following items:

• Personal desks, department tables and each department's area may keep organized piles of forms and documents conforming to Wal-Mart requirements, but any other dated form or material should be hidden.

• Any documents, forms or rules pertaining to the details of fines or punishments should also be collected

• When each department completes its inspection document and examines the C shift workers, be sure that Saturdays are not listed.

• If any department has another department's forms , they should also adjust these forms to meet requirements.

• All departments should be especially aware of and check on the records from April 4-6. The factory gave res t from April 4-6 so there should be no records.

The following are instructions for items that each department should consider in case a client unexpectedly comes to the factory:

A. Logistics Department

1. When the customer comes, front door security people should immediately notify HR staff Lily, and also the back door security people should go to the clor printing department and send workers to come to the old factory . Also send tell dual workers (at Huasheng and Ruihua) to immediately leave the factory. At the same time, block the road between the two factories and alert the responsible person in each department.

2. After the customer has entered into the main facilities, a worker should remove the “production department daily overtime announcement.”

3. The logistics board will be responsible for clearing announcement boards in the cafeteria, transportation platform and the office interior.

4. The desks in the security bureau can have dispatch forms, but any other documents with dates should not be left out.

5. The penalty rules posted behind the visitor verification area should be removed entirely.

6. The factory rules and procedures for handling working hours and penalties during factory investigations should be totally removed

7. The passage to the second factory should be blocked, and “Huasheng Factory 2” should not be mentioned.

B. Workshop

1. Make sure all emergency fire exits are unblocked and that all fire equipment is unobstructed.

2. Adjust m aterial requisition forms according to requirements, for instance, C shift workers must not be stated to work on Saturdays in their records.

3. Other dated forms or announcement about the punishment system cannot be seen outside.

4. The goods delivery plan should be straightened up, and special notice should be taken not to have any work scheduled for Saturdays.

C. Transportation Department

1. Any forms or documents that have not been properly straightened out in the office should be collected .

2. Our company does not have drivers or cars, all drivers and dispatchers will be considered delivery people.

3. The goods delivery chart cannot have delivery times listed from 2 am AM -8 am AM .

4. The following two people should be avoided during factory investigation, and their names should not appear on any records:

(Chart with information for chauffeur and driver removed)

D. Production Department

1. A selected staff person will be in charge of the message board at each department head's desk, and these people must be notified in the soonest possible time after the customer arrives at the factory so that they can clear out whatever needs to be cleared. 

Page 2

2. Our company does not have vehicles or chauffeurs; all chauffeurs and dispatchers will be part of the car group. The following three workers should be absent for the inspection, and their names should not appear on any records .

(Chart with drivers' names removed.)

3. The daily production printing and B machines in the production department's newspaper cannot be left on top of the table, but should be said to have been given to the literature worker to be handled; other work units daily papers should be straightened out as needed.

4. The “temperature records” and “lake concentrations” for the shuangmian machine should not be printed on the factory paper and should be adjusted to meet requirements.

5. The housing registration headcount should be adjusted to meet requirements , the name list in effect cannot be left out , and all other documents or forms containing dates should be collected. All assignments should follow the schedule on the computer.

6. In the board room, everything should be collected next to the sign that says: “Board room workers should do report forms every day.”

7. The “ boiler operating state condition inspection chart” in the boiler room should not include the portion “boiler room manager monthly patrol check chart” and other documents should be organized and left on the table.

8. All fire safety exits, stairways, as well as all important passageways and intersections cannot be obstructed.

9. The door to the ink room next to the nail machine should be left open, so as to go to JLT.

10. All fire safety equipment should have one meter of space of free space around it. All fire safety equipment must be unobstructed.

E Sales Department

1. All working times should be straightened out, and the clock - out time records should also be put in order.

2. The staff lists and clerk tables should be put in order

F Product Management Department

• (This sentence is unclear)

• The product management table and forms should be organized

• The canteen quality publicity board and other quality boards should be straightened out.

• The “incoming material testing report” in the product testing room should be organized as required.

• The “record of tool maintenance” in the product testing room should be organized as required.

G. Engineering Department

1. The “ facilities maintenance record cards” on the two boards near the door and on the table in the A section of the engineering department should be put in order.

2. The “ facilities maintenance card” and “ facilities movement attitude award card ” should constantly be adjusted to meet requirements.

Please have section managers from every department finish putting things in order before Tuesday, and maintain until Wal-Mart and Office Max complete their inspection. If it is necessary to put out anything for use that does not meet requirements, when the inspectors arrive these things must be immediately put in order upon customers' arrivals . 

Page 3

Items for notice during factory inspection

Temporary preparation for workers who are spot-checked:

• Every person must remember the base pay, which was given out several months ago, if you don't remember, just remember approximately what was paid in March. Payment is given out before the 7 th of every month.

• There are about 400 people in the company factory, there is a two month probationary period for new workers, and everyone has social insurance. ( When workers first enter the factory, workers' compensation is purchased, after medical insurance and retirement insurance are purchased. )

• The company has medical first aid and fire safety practices , as well as offers fire safety training twice a per year in May and October.

• Workers work normal hours Monday through Friday, never work overtime, work 8 hours of overtime on Saturday, and never work overtime on Sunday.

• Benefits: For example, on International Workers Day there is a worker organized raffle, on New Year's, there is a basketball tournament.

• In the past few years there has been no worker injury; workers get paid vacation at on Spring Festival, but have not rested in a few months because they are waiting saving it for future personal business demanding immediate attention.

• Working hours are 8-noon, 1:30-5:30, 5:30-11:30, 11:30- 2 (every day four punchings)

• If there is legally required rest on Saturday and Sunday, there is also a day given on Monday, and because the company has good pay, pay is given for Saturday and Sunday.

Handwritten part at bottom of Page 3:

The Communication Manager strictly forbids entering work procedures , such as those pertaining to resignation, production and printing, into computers. For example, the resignation procedures has been ... (production, printing, all staff members) Keep this in mind!

Page 4

Hello everyone

Below are teaching materials for temporary training of workers spot-checked during a factory investigation, please maintain the department's rigorous training :

• The company's wages are on a daily, hourly schedule: the base pay is 43.21 RMB / day and before the wages were higher than 43.21 RMB/day, calculated according to working time. If asked about wages several months before the inspection, state that after so long you cannot remember but can only remember approximately what was paid in March. Payment is given out before the 7 th of every month.

• There are about 400 people in the company factory, there is a two month probationary period for new workers, everyone has social insurance (when workers first enter the factory, workers comp ensation is purchased, after medical insurance and retirement insurance is purchased).

• The company has medical first aid and fire safety practice training, which takes place twice per year, with fire safety training twice a year, in May and October.

• Workers work normal hours Monday through to Friday, never work overtime, work 8 hours of overtime on Saturday, and never work overtime on Sunday, on April 4th, everyone is off for the Qing Ming Festival. On the 5th it is a Sunday so everyone has off, and on the 6th is scheduled rest so no one works. The 4th and the 5th are paid. Saturday, there is work, at 2 times the normal pay rate pay. The factory provides room and board and doesn't charge anything. No one requires any money from workers when they enter the factory. The factory doesn't have institute any penalty fines, only oral criticism.

• In recent years, there have been no no incidents of worker injuries injury. The company provides New Year's vacation but no one has rested in the past few months. Workers of 1-10 years are given 5 days of rest, 10 years and over get 10 days. At Spring Festival , everyone is off at the same time. From January 22nd to-Feb 1st, starting on January 22nd no one works. On Feb ruary 2nd, people start working again. During this break aside from Sundays when no one is paid all workers receive their base salary. If the inspectors ask; the busy period is from July to September but there is no overtime.

The following is a list of all workers who requested time off from October 2008 to February 2009; during the inspection aside from these workers who requested time off, no other workers asked for time off, remember!

(Charts removed)

Page 5

6. Working hours are from 8 AM - noon Noon , 1:30-5:30, 5:30-11:30, 11:30- 2 (every day four clock punchings).

1. If there is legally required rest on Saturday and Sunday, there is also a day given on Monday, and because the company has good pay, pay is given for Saturday and Sunday.
2. Wages are paid via the bank, Shenzhen Development Bank.
3. All workers have labor contracts. Contracts from before Jan 1, 2008 are unlimited work contracts for 10 years, all other contracts are: Jan 1, 2008 to Dec 31, 2010; after Jan 1 the starting date is the day the worker entered the factory and signed, lasting until December 31, 2010.